Greeks, Media And Commodities

di Walter Snyder, Swiss Financial Consulting

The media frenzy over Greek antics shows no sign of abating as it seems that the Greek tragedy is becoming a never-ending story. The practical confiscation of €50 billion of public holdings may help to cover some EU bank loans but will hardly solve the problem of excessive indebtedness. The dead weight of pensions has not really been lifted and will haunt the government until it is. Entitlements that cannot be honored are one of the main contributors to public bankruptcy. Besides that, Greece has to import half its food and most of the medicines needed. Alas.

At the same time there are many other developments that the mainstream media neglect or relegate to less conspicuous pages. The correction or rather the rout in the Shanghai Stock Exchange has been duly noted and put to use to run down China along with allusions to an economic slowdown, a distressed housing market, corporate debt , government ineptitude and whatever else comes to mind.

The high-flying dollar is regarded as a danger for the US rather than a toxin for developing markets that depend on the export of raw materials. The slump in commodity prices, which offers opportunities for traders, is attributed to the high cost of dollars and a global economic slowdown. Some analysts point to oversupply, and that is obvious in the case of oil. If Iranian production returns to the market, then oil prices can slide still further. It is interesting to note that US shale oil production has increased despite fewer rigs and fewer workers employed, thanks to higher productivity.

While commodity prices for minerals and metals have fallen, witness the lows for iron ore, which cause pain for Australia, prices for wheat rose to extreme highs at the beginning of July and then fell along with the general commodity rout. The causes of a fall in commodity prices are usually oversupply, poor demand, economic slowdown and, in the present case, an usually strong dollar that depresses the price of commodities in the country they are produced in. This means financial problems for producers because of lower income but is good news US imports, not for exports.

So the Americans have succeeded again in getting goods at cheaper prices for the currency of a country whose sovereign debt is more than 100% of its GDP with investors eager to buy more dollars in hopes of a rise in interest rates. Something is rotten in the state of “the home of the free”. The Great Depression of the 1930s started in the US as did the Great Recession of 2008. A rise in US interest rates may spark off the next great conflagration. Maybe the BIS will put it out instead of manipulating the gold price. Bargain hunters will go for gold, it melts at 1,064° C.